The recent Federal budget contained some big news that will influence retirement planning for Australian workers, with changes being announced to the superannuation guarantee. What does this look like, and how will this impact your business?
Rate of compulsory super set to rise from July 1 2021
The superannuation guarantee is the proportion of wages that employers must contribute to retirement savings. The good news for workers is that this is set to increase from 10% from July 1st 2021 to 12% by 2025.
Under Australia’s Superannuation Guarantee laws, employers are currently required to pay the equivalent of 9.5% of ordinary time earnings. These changes will benefit all working Australians, boosting the coffers of our collective superannuation funds with the aim of making the retirement years more financially comfortable for workers.
What does the SG increase look like over four years?
The increase in the superannuation guarantee to 12% will be staggered over the next several years, with small increases to take place each year until 1 July 2025. This gives businesses time to plan for the future, as they only need to make small increases each year instead of being hit with a 2.5% increase all at once.
Here’s what it will look like:
Three issues that employers need to consider
These changes will impact employers in several ways. Here are some things you will need to consider in light of the increase to the superannuation guarantee obligations:
- Are your employees remunerated under a superannuation-inclusive package?
If you have employees that are remunerated through a superannuation-inclusive package - in the absence of a remuneration review - their take-home cash payments may reduce from 1 July 2021. Employers will need to advise staff if this is the case.
Alternatively, employers might consider implementing a pay increase to ensure consistency in take-home cash payments. Either way, this will need to be communicated clearly to all staff affected in one way or another by the changes from July 1st.
- Do your employees receive SG contributions on top of their cash income?
Do your employers receive contributions in addition to their cash income? Employers will need to incorporate the increase in SG payable in budgeting for upcoming employee benefits, where an employee's SG is paid on top of their cash income.
This budgeting will also need to factor in the overall cost impact where there are increases to underlying pay (for example, salary/wage increases), noting that this will result in a dual increase to both superannuation and cash income.
- Is your payroll system ready to incorporate the SG changes?
Is your payroll team across the new changes? To ensure the increase in superannuation guarantee rate runs smoothly, we recommend employers clarify with their payroll provider prior to 1 July 2021 how the change will be implemented in the payroll system - including conducting testing and exception reporting prior to July 2021.
Are you ready for the July 1 changes? We can help.
Employers should start preparing for the currently scheduled SG increase, and how this will impact their employee remuneration arrangements from 1 July 2021. The team at Lead Advisory Group is more than happy to answer any questions you might have - feel free to contact us via phone or email for a discussion.